Shaffer v. Heitner

Facts

Greyhound Corporation (“Greyhound”) is a business incorporated in Delaware with a principal place of business in Phoenix, Arizona. Greyhound and its wholly owned subsidiary, Greyhound Lines, Inc., were previously held liable for substantial damages in a private antitrust suit and given a large fine in a criminal contempt action. The activities that gave rise to that suit took place in Oregon. Plaintiff, Heitner, is a nonresident of Delaware who owns one share of stock in Greyhound.

On May 22, 1974, Heitner filed a shareholder derivative suit in the Court of Chancery for New Castle County, Delaware, against Greyhound, Greyhound Lines, and 28 present or former officers or directors of one or both of the corporations. Heitner alleged that the individual Defendants violated their duties to Greyhound by causing it and its subsidiaries to engage in the actions in Oregon that resulted in the previous suit. Heitner also filed a motion for an order of sequestration in the Delaware property of the individual Defendants in pursuant to Delaware state law. The property was identified as common stock, preferred stock, and stock unit credits of Greyhound. The requested sequestration order was signed on the same day the motion was filed. As a result, the sequestrator seized approximately 82,000 shares of Greyhound common stock belonging to 19 of the defendants, and options belonging to another two defendants. None of the certificates representing the seized property were physically present in Delaware. The stock was considered to be in Delaware, which makes Delaware the situs of ownership of all stock in Delaware corporations.

All 28 Defendants were notified of the initiation of the suit by certified mail directed to their last known addresses and by publication in a New Castle County newspaper. The 21 Defendants whose property was seized responded by entering a special appearance of the purpose of moving to quash service of process and to vacate the sequestration order. They argued that the ex parte sequestration procedure did not accord them due process of law. Additionally, they maintained that they did not have sufficient contacts with Delaware to sustain the jurisdiction of that state’s courts. The Court of Chancery rejected their arguments. On appeal, the Delaware Supreme Court affirmed the judgment of the Court of Chancery.